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The eurozone has set up a rescue package worth 750bn euros

The International Monetary Fund (IMF) has told the eurozone bloc to speed up budget cuts or risk eroding the confidence of financial markets.

In a hard-hitting report, the IMF said the current "crisis management" was no alternative to fundamental economic restructuring.

The IMF report said the economic crisis was due to "unsustainable policies".

It came as European finance ministers approved the creation of a fund for emergency loans to debt-laden states.

EU officials hoped that the official go-ahead for the 750bn euro ($893bn; £618bn) fund - first announced last month - will calm investors who are worried about the lack of a safety net for European governments who cannot repay mounting debt.

In other developments, EU finance ministers agreed to design new rules that will allow nations to intervene before countries become too laden down by debt - essentially meaning national budgets should be shown to European partners before they are fixed at home

And British Prime Minister David Cameron warned that dealing with the deficit would be "unavoidably tough" and affect "our whole way of life". An emergency budget detailing the cuts is being held in two weeks.

Euro lows

Further sovereign debt worries and the possibility of a double-dip recession consumed European markets on Monday.

Hungary has been the latest country to stir investor concern after government officials compared the country's fiscal position with Greece late last week.

There has also been a fall in the value of the euro, with the single currency trading close to its lowest level against the dollar in four years.

The essential thing is that this is based on the same kind of conditionality as the rescue package for Greece Olli Rehn, EU Economic and Monetary Affairs Commissioner

And the IMF said "delayed or half-hearted" budget cuts in the 16-nation eurozone would further undermine confidence.

The IMF praised the eurozone's response to the crisis so far, including the setting up of the 750bn euro rescue package.

But the IMF warned: "Crisis management is not an alternative to the corrective policy actions and fundamental reforms needed to reinforce the foundation of the European Monetary Union (EMU)."

The IMF, which is contributing to the rescue fund, continued: "The current euro area crisis results from fiscally unsustainable policies in some countries, delayed repair of the financial system, insufficient progress in establishing the discipline and flexibility needed for a smooth functioning of the monetary union, and deficient governance of the euro area."

The organisation said that some eurozone countries needed to open their trade markets and loosen employment regulations in order to avoid "anaemic growth" in the coming years.

The EU loan scheme, which ministers rubber-stamped on Monday, is aimed at preventing troubled economies having to borrow at high prices on the open markets, exacerbating their problems.

The markets expect that Portugal, Ireland, Spain and Italy are most likely to call on help from the fund.

However accessing emergency loans would be "strictly conditional" on recipients agreeing to certain criteria such as spending cuts - just as with the bail-out agreed for Greece, said EU economic and monetary affairs commissioner Olli Rehn.

The financial rescue package includes a special purpose vehicle to borrow up to 440bn euros for emergency funds.

Also available is 60b euros managed by the EU's executive commission while the International Monetary Fund will provide another 250bn euros.